WALL STREET WORRIES
Stock Market News
WALL STREET WORRIES
May saw some pivotal events on the exchanges - none of them uplifting. On May 11, following the death of the Iraqi Governing Councilâs President in a suicide bombing, the markets fell world-wide, and all three Wall Street market gauges posted new lows for the year with the Dow dipping below 10,000 for the first time since December 2003. In addition, concern over the U.S. role in Iraq, coupled with reduced refining capacity state-side, helped to push oil prices to record levels as crude topped a whopping $41 a barrel.
Disciplined Investment Strategy
However you choose to slice it, the Dow is down around 800 points since February this year and, seemingly stuck in a narrow trading range, continues to struggle to break through the 10,000 mark. Before becoming too despondent, analysts suggest investors take a look at longer term trends and performance data. They note that we have just come off the longest rally, without a correction of 5 percent or more, in 100 years and that what we have now is a correction of about 7.5 percent. This may not be great news but it is not alarming either. Investors tend to have short memories when turbulent times arrive. If youâve had a bumpy ride for the last few years, keep the bigger picture in mind. It may surprise you to know that S&P 500 has posted an annualized return of 11.7 percent over the past decade. With this in mind, the pros suggest that investors develop a disciplined long-term strategy to help ride out the inevitable highs and lows and avoid knee-jerk reactions. Looking ahead, many experts remain confident that the market will deliver 7 to 9 percent returns over the next few years.
Hereâs what they are saying about some of the worries that investors have faced in recent weeks:
- This is not a replay of the â70s.
According to most analysts, it is unlikely that we will see a replay of the dismal stock market performance of the â70s - despite conditions that appear to mimic those of three decades ago. Experts note that rising oil and gas prices no longer have the power to halt our economy. We are significantly more efficient and effective in our use of energy sources, and technology has allowed us not only to access reserves that were previously economically unrecoverable, but also has allowed us to harness other new fossil fuel resources like gas hydrates.
- Geopolitical and economic uncertainties abound.
Weâve coped with conflict in the Middle East before, but now we donât know where our current level of military involvement in Iraq might lead, or what impact it might have on our presidential elections back home.
- Stock prices may come under pressure.
Although investment experts believe that it will not be the threat it was in the â70s, they note that inflation may put some pressure on stock prices. And - speaking of pressure - everyone concurs that interest rates will increase. Ironically, recent oil price increases are likely to delay the Fedâs long-anticipated hike in rates, which pundits previously forecast for summer. Analysts expect - and hope - that an increase in interest rates, which can be expected to squeeze corporate profit margins, will be phased in gradually. Under this scenario, it may be two years or more before stock prices are affected.
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